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Media Convergence- Part 1Media Convergence- Part 1

CPS 181sNov 20, 2001

MEDIA CONVERGENCEMEDIA CONVERGENCEMEDIA CONVERGENCE

Media convergence and its synergistic benefits arekey drivers behind mega-mergers in media companies

America Online (AOL) and Time-WarnerViacom and CBSThe Walt Disney Company and Capital Cities/ABC

Increased possibility to increase access convenienceand new innovative services

Fragmented media usage in householdsChanges in federal communication lawsAdvances in digital technology

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MEDIA CONVERGENCE…..MEDIA CONVERGENCEMEDIA CONVERGENCE……....Media content refers to the content of the communication, nottheir infrastructureMedia convergence occurs when different types of mediacontent found across types of media form will be accessible indigital form in digital devicesContent includes: text, audio, and videoDevices include: wireless telephones, personal computers,PDAs, and interactive television desktops

This chapter reviews the implications of thatconvergence for the old and new economy, on variousmedia platforms, and public policy issues

QUESTIONSQUESTIONSQUESTIONS What is media convergence?

What conditions make media convergence possible?

How do new media companies leverage off traditions media

channels?

What are the reasons for media megamergers?

What public policy issues must be addressed with digital

convergence and media convergence?

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WHAT CONDITIONS MAKE MEDIA CONVERGENCE POSSIBLE?WHAT CONDITIONS MAKE MEDIA CONVERGENCE POSSIBLE?WHAT CONDITIONS MAKE MEDIA CONVERGENCE POSSIBLE?

The use of a CO-der-DECoder (codec) enabling analog signals and digitalsignals to be convertedContinued Advances and Decreasing Cost of Digital TechnologyMost media content originate sin digital formDigital is easily manipulated, stored, combined, and transmittedLow-Cost Digital Network InfrastructureUse if the non-proprietary network protocol (IP), transfer protocol (HTTO),and hypertext language (HTML) allows an unencumbered environmentThe World Wide Web became a low-cost digital network infrastructurethat experienced an explosive growth in users and sitesMedia ProliferationFrom newspapers at the turn of 1900 to cable in the 1980s and satellitereception in the 1990s, the number of media choices continue to grow

WHAT CONDITIONS MAKE MEDIA CONVERGENCE POSSIBLE?...WHAT CONDITIONS MAKE MEDIA CONVERGENCE POSSIBLE?...WHAT CONDITIONS MAKE MEDIA CONVERGENCE POSSIBLE?...

Media Usage Fragmentation in American HouseholdsIncreased fragmentation of media shows a decline intraditional television news viewing in AmericaThe dwindling television news audience was greatestamong younger people who spent more time with theircomputersBroadcast and entertainment showed a steady declineas well, as basic cable subscriptions increasedThe percentage of households with alternative forms ofmedia entertainment and information increased

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A Technographic’s View of New Consumer Internet AdoptionA A TechnographicTechnographic’’ss View of New Consumer Internet Adoption View of New Consumer Internet Adoption

Early Adopters

Mainstream

Laggards

Time

Source: Mary Modahl, “Now or Never: How Companies Must Change Today to Win the Battle for Internet Customers” Harper Business, 2000

Number of newon-line

customers

Primetime Viewing Shares of Free and CablePrimetime Viewing Shares of Free and CableTelevision Networks -1985 to 1998Television Networks -1985 to 1998

Year Network AffiliatesAd-Supported Basic

CableAll Other Television

1985 - 1986 69.3% 7.5% 23.2%

1989 - 1990 58.1% 16.4% 25.5%

1990 - 1991 55.1% 19.3% 25.6%

1991 - 1992 54.9% 19.8% 25.3%

1992 - 1993 52.9% 21.1% 26.0%

1993 - 1994 52.4% 21.3% 26.3%

1994 - 1995 48.7% 24.3% 27.0%

1995 - 1996 46.0% 26.7% 27.3%

1996 - 1997 42.1% 29.7% 28.2%

1997 - 1998 39.6% 32.5% 27.9%

Note: For all television viewing Monday-Sunday, 8-11pm EST. Due to multiset use and independent roundings, totals add up to more than 100. 1Includes theFOX network, UPN, WB, other independent stations, pay cable and public television

Source: Cable Advertising Bureau, Cable TV Facts (1999)

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Primetime Viewing Shares of Free and Cable Television NetworksPrimetime Viewing Shares of Free and Cable Television Networks

Note: For all television viewing Monday-Sunday, 8-11pm EST. Due to multiset use and independent roundings, totals add up to more than 100. All Otherincludes the FOX network, UPN, WB, other independent stations, pay cable and public televisionSource: Cable Advertising Bureau, Cable TV Facts (1999)

Primetime Viewing Shares of Free and Cable TV Networks1985-1998

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1985 1990 1991 1992 1993 1994 1995 1996 1997 1998

All OtherBasic CableNetwork Affiliates

Children Were Found to be Immersedin Media Usage

Children Were Found to be ImmersedChildren Were Found to be Immersedin Media Usagein Media Usage

Television

Music

Reading

Watching videos

Using a computer

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Statistics From Kaiser Foundation ReportStatistics From Kaiser Foundation Report

Amount of time kids spend each day on average:

Watching TV 2:46

Listening to music 1:27

Reading for fun :44

Watching videos :39

Using a computer for fun :21

Playing video games :20

Online :08

Percent of kids who have a TV in their room:

All kids 2-18 53%

2-7 year olds 32%

8 and older 65%

Percent of kids who have a computer in the home:

All kids 2-18 69%

2-7 year olds 62%

8 and older 73%

Lower income 49%

Upper income 81%

Percent of kids who have a computer in their bedroom:

All kids 2-18 16%

2-7 year olds 6%

8 and older 21%

Parental oversight - Percent of kids…

With no rules about TV 49%

In homes where TV is usually on during meals 58%

Percent of time parents watch TV with their kids:

2-7 year olds 19%

8-18 year olds 5%

Source: Kaiser Family Foundation

Kids and MediaResults of a study measuring how much media children are exposed to . Times are in hours and minutes.

Forecasted Continued Media Proliferationand Media Usage Fragmentation

Forecasted Continued Media ProliferationForecasted Continued Media Proliferationand Media Usage Fragmentationand Media Usage Fragmentation

Experts predict that over the next ten yearstechnological advances in wireless, digitalcompression, two-way networks, the Internet, andhigh-definition television (HDTV) will present evenmore choices

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Media Fragmentation, 1960’sto 2010’s

Media Fragmentation, 1960Media Fragmentation, 1960’’ssto 2010to 2010’’ss

Source: Business Week, February 16,1998

Most Americanswatch the BigThree Networksevery night

UHF Stations bringmore choices, and thefledging cable industryintoduces a few newchannels like HBO andTurner’s TBSSuperstation

The VCR becomescommonplace, lettingconsumers watchrecorded shows andmovies whenever theywant. Cable explodes,with new networks likeCNN and MTV.

Digital compression and two-waynetworks allow cable companies to offereven more channels and services. DBSservices grow more entrenched. As TVsare linked to the Internet, newprogramming delivered via the Internettakes hold. Result: 300 choices at anymoment.

Broadcasters may use high-definitionTVspectrum to launch more channels.Internet chat evolves into networked virtualreality games, interactive movies, andother activities being hatched by MITsmedia lab and others. News Corp.forecasts 1,000 channels, now called“context windows”.

Direct-broadcast satellites areintroduced offering hundreds ofchannels. Cable systems areslowly upgraded with morechannels

1960s 1970s 1980s 1990s 2000s 2010s

TV faces theworst audiencefragmentation ofall. Here, NewsCorp. tracks andforecasts theexplosion of TV-viewing choicesavailable in anygiven hour.Once there werethree options;soon there willbe 1,000

TV faces theworst audiencefragmentation ofall. Here, NewsCorp. tracks andforecasts theexplosion of TV-viewing choicesavailable in anygiven hour.Once there werethree options;soon there willbe 1,000

How Offline Media Drives OnlineMedia

How Offline Media Drives OnlineHow Offline Media Drives OnlineMediaMedia

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How Do New Media Companies LeverageOff Traditional Media Channels?

How Do New Media Companies LeverageHow Do New Media Companies LeverageOff Traditional Media Channels?Off Traditional Media Channels?

The New Economy is quite depend upon the traditionalnew outlets of the Old economyOnline presence is using traditional media to build anaudience for the new mediaIn 1999, an estimated 28 percent of all Americanhouseholds were online, a threefold increase fromalmost 9 percent just four years earlierBuild brand awareness among Internet users, dot comcompanies spent an estimated $3 to $4 billion inadvertising in 1999

Media CompaniesMedia CompaniesMedia Companies

90 percent of those dollars were on traditional mediaoutletsOnline news users say they still read newspapers andlisten to radio news about the same or at a higherrate than onlineThe Internet has emerged as a mechanism forsupplementing, not replacing traditional mediasources

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Dot-Com Spending in Traditional MediaDot-Com Spending in Traditional MediaDot-Com Spending in Traditional MediaDot-com and online services

spending in traditional media ($in thousands)

1/99 – 6/99 %Chg YoY

Network TV 129,218 910%

Cable TV 83,105 323%

Magazine 81,233 206%

Spot TV 63,828 136%

National Newspaper 56,835 180%

Spot Radio 50,149 318%

Local Newspaper 24,066 238%

Network Radio 18,348 71%

Outdoor 5,865 521%

Sunday Magazine 1,662 375%

Syndicated TV 642 22%

Total 514,951 273%

Source: Advertising Age

Top Dot-Com and Online Service AdvertisersTop Dot-Com and Online Service AdvertisersTop Dot-Com and Online Service Advertisers

Top Dot-com and onlineservices spending in local and

national newspapers1/99 – 6/99 1/98-6/98

1. Value America 19,778 5,499

2. E*Trade 9,053 4,218

3. Dow Jones (Online OPS) 7,648 6,438

4. Cheaptickets.com 4,147 2,112

5. Priceline.com 3,153 1,006

6. Charles Schwab (online) 2,887 0

7. AltaVista 2,281 0

8. Lowestfare.com 2,261 0

9. BankOne (online) 1,648 0

10. Amazon.com 1,333 0

Total 54,190 19,273

Source: Advertising Age

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U.S. Advertising Expenditure, All MediaU.S. Advertising Expenditure, All Media

*

Top 100 Daily Newspapers in the United States by Circulation, 1998

19971 (Millions)Percent of

Total19982

(Millions)Percent of

TotalPercentChange

Daily newspapers total $41,341 22.1 $43,925 21.8 6.3

• National 5,322 2.8 5,721 2.8 7.5

• Retail 19,257 10.3 20,331 10.1 5.6

• Classified 16,762 8.9 17,873 8.9 6.6

Magazines 9,821 5.2 10,518 5.2 7.1

Broadcast television 36,893 19.7 39,173 19.4 6.2

Cable television 7,237 3.9 8,301 4.1 14.7

Radio 13,491 7.2 15,073 7.5 11.7

Direct mail 36,890 19.7 39,620 19.7 7.4

Yellow pages 11,423 6.1 11,990 5.9 5.0

Miscellaneous3 23,940 12.8 25,769 12.8 7.6

Business papers 4,109 2.2 4,232 2.1 3.0

Outdoor 1,455 0.8 1,576 0.8 8.3

Internet 600 0.3 1,050 0.5 15.0

Total – National 110,538 59.00 119,285 59.3 7.9

Total – Local 76,662 41.0 81,942 40.7 6.9

Total – All media $187,200 100.0 $201,227 100.0 7.5

America Online Welcome ScreenAmerica Online Welcome ScreenAmerica Online Welcome Screen

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Case Example: America OnlineCase Example: America OnlineCase Example: America Online

Founded by Steve Case in Northern Virginia, America Online(AOL) first sought partnerships with established mediabrands (Apple, MTV, San Jose Mercury News, and NBC)Newspapers had retreated from electronic media back toprint and allowed third-party online services to emerge as anuncontested marketBy 1995, America Online would surpass Prodigy andCompuServe as the largest online service company in theUnited StatesAmerica Online achieved a market value of over $138 billionand would also acquire CompuServe, Netscape, and Time-Warner

Monster.com Home PageMonster.com Home PageMonster.com Home Page

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Case Example: Monster.comCase Example: Monster.comCase Example: Monster.com

Founded by Jeff Taylor in Massachusetts,Monster.com was reaching 3.5 million unique usersas of January 2000By January 2000, Monster.com build brandawareness largely through the combined use ofbroadcast television commercialsMonster.com created a pre-emptive lead against itscompetitors and an effective barrier to entry

Monster.com User StatisticsMonster.com User StatisticsMonster.com User Statistics

December1998

March1999

June1999

September1999

January2000

U.S. Internet Usersvisiting Monster.com

1.4% 3.4% 4.2% 4.1% 5.3%

Direct Traffic(non-alliance)

81.0% 90.0% 94.0% 95.0% NA

Page Views 48 Million 82 Million 122 Million 146 Million 158 Million

Paid Job Listings 186,000 204,000 252,000 255,000 315,000*

Resume Database 1.0 Million 1.3 Million 1.6 Million 2.0 Million 3.0 Million

Registered Members NA 2.5 Million 3.6 Million 4.2 Million 6 Million

Monster.comKey Metrics — December 1998 to January 2000

Note: *As of December 1999Source: Bean Murray Institutional Research, Monster.com, Media Metrix

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CBS Marketwatch Home PageCBSCBS Marketwatch Marketwatch Home Page Home Page

CBS Evening News

CBS Marketwatch Weekend

DrivingTraffic

DrivingTraffic

Case Example: CBS MarketwatchCase Example: CBS MarketwatchCase Example: CBS Marketwatch

Founded by Larry Kramer, the San Francisco-basedfinancial news vertical, utilizes the resources of CBDS,its minority equity owner and broadcast partner to buildbrand awareness nationwideAs of March 2000, the site had become the fortiethmost visited site n the web with 5.5 million unique usersBy utilizing its content on broadcast news, there isreference to the site dailyRather than using the Web to enhance their corebusiness, CBS Marketwatch has as it focused purposeto build a great website

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What are the Reasons for MediaMegamergers?

What are the Reasons for MediaWhat are the Reasons for MediaMegamergers?Megamergers?

Media companies have been using mergers to developvertical integration for content and distribution across allmedia: print, video, and audioMedia merges have increased with the increase ofbroadband

List of Recent Mega-MergersList of Recent Mega-Mergers1995 Disney and Capital Cities / ABC

1995 Time-Warner and Turner Broadcasting

1995 Westinghouse and CBS Inc.

1996 SBC and Pacific Telesis

1996 NYNEX and Bell Atlantic

1996 US West and Continental Cable

1996 Thomson and West Publishing

1998 America Online and Netscape

1999 AT&T and Comcast

1999 Viacom and CBS Inc.

2000 America Online and Time-Warner

2000 Tribune Company and Times Mirror Company

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Top Multiple Systems OperatorsTop Multiple Systems Operators

Source: TV Digest, May 12, 1997 by permission from Warren Publishing

Rank System operator Number ofSubscribers

Pay-cableunits

Homes passedby cable

1 Tele-Communications Inc. 14.4 14.3 23.8

2 Time Warner Cable 12.3 8.2 19.0

3 US West Media Group 4.9 3.8 8.3

4 Comcast Cable Communications Inc. 4.3 3.7 6.9

5 Cox Communications Inc. 3.3 2.0 5.1

6 Cablevision Systems Corp. 2.9 4.8 4.4

7 Adelphia Communications Corp. 1.8 0.8 2.6

8 Jones Intercable Inc. 1.5 1.2 2.3

9 Century Communications Corp. 1.3 0.5 2.1

10 Marcus Cable 1.2 0.7 1.9

Top 10 Multiple System Operators, Data in Millions, 1997

Point - Counterpoint on Cross Media OwnershipPoint - Counterpoint on Cross Media OwnershipPoint - Counterpoint on Cross Media Ownership

Relax/Eliminate Media Ownership RulesRelax/Eliminate Media Ownership Rules

Existing Federal laws prohibiting cross-ownership of a television station and anewspaper in the same market or limitingthe number of television or radio stationsthat a single media company can areoutdated.

With the individuals having increasedaccess to other sources of media, such ascable channels and Internet sites,concentration of media in single marketcannot be achieved. Media usage is muchmore fragmented today than ever before

Existing Federal laws prohibiting cross-ownership of a television station and anewspaper in the same market or limitingthe number of television or radio stationsthat a single media company can areoutdated.

With the individuals having increasedaccess to other sources of media, such ascable channels and Internet sites,concentration of media in single marketcannot be achieved. Media usage is muchmore fragmented today than ever before

Maintain Media Ownership RulesMaintain Media Ownership Rules

Existing Federal Laws need to be maintainto ensure the public’s interest and to keepcompetition

Local newspapers and television stationscontinue to dominate the media in localmarkets. Allowing cross-ownership willreduce the number of choices for viewers,readers and advertisers.

Existing Federal Laws need to be maintainto ensure the public’s interest and to keepcompetition

Local newspapers and television stationscontinue to dominate the media in localmarkets. Allowing cross-ownership willreduce the number of choices for viewers,readers and advertisers.